Impact on PH of global banking turmoil ‘limited,’ says IMF

The global banking turmoil has had a limited impact on the Philippines, but tightening conditions warrant close monitoring of the financial system, according to the International Monetary Fund (IMF).

Based on findings of the latest IMF mission to the Philippines, the domestic banking system has sufficient liquidity and capital buffers, as spillovers from the global banking debacle have been limited.

Shanaka Jay Peiris, chief of the regional studies division at IMF’s Asia and Pacific Department, led a visiting team that held meetings on May 8 to May 12, to discuss recent economic and financial developments and the outlook for the Philippine economy.

In a press briefing, Peiris said that amid tighter financial conditions, the corporate sector would need close monitoring.

“Financial regulators should strengthen the resolution framework for financial institutions and the insolvency regime for corporates,” Peiris said.

“With credit growth projected to remain healthy, regulatory forbearance measures should be allowed to lapse as scheduled,” he added.

Stable credit profiles

In a related development, Fitch Ratings said economies in the Asia-Pacific region including the Philippines continue to be strong and were expected to remain conducive to stable bank credit profiles.

“Our outlooks for banks’ issue default ratings, operating environments and sector prospects in the region are mainly stable or neutral, suggesting that we expect changes to be limited,” the global credit watchdog said.

This, the company added, partly reflects its expectation that economic growth in the region will remain relatively robust compared with prepandemic historic norms.

“We see increases in risk appetite as important, and believe risks are accumulating in several emerging market banking sectors, notably India and the Philippines,” it added.

In a separate commentary, Fitch Ratings observed that the growing share of unsecured consumer lending in banks’ loan portfolio might add to risks in the Philippine banking system if the strong economic growth that supported household appetite to borrow falters.

Unsecured credit

Fitch Ratings said consumer lending revved up strongly amid economic reopening through 2022, and keeping the momentum over to this year with a growth rate of 25.7 percent in February.

At the same time, faster growth was seen in riskier unsecured segments such as credit cards (29.4 percent) and salary-backed general consumption loans (68.8 percent).

This was in contrast to slower growth in residential mortgage lending amid higher interest rates.

These developments, Fitch Ratings said, reflected a release of pent-up demand in the wake of the COVID-19 pandemic, as well as strong fundamental demand from a growing population with rising incomes.

The result is that the share of unsecured consumer loans to total loans rose to about 7 percent in December 2022 from 5 percent in December 2017. INQ